Usance Letter of Credit Payable at Sight
Usance letter of credit payable at sight: a flexible way of trade finance
Owing to financial needs, a beneficiary usually expects at sight payment of goods while the applicant wants a payment after sight. Thus neither a sight L/C nor a usance L/C could satisfy both parties, hence the usance letter of credit payable at sight.
1. Usance letter of credit payable at sight used by the opening bank to finance is a kind of usance letter of credit, thought different from common usance letters of credit. With this usance letter of credit payable at sight, though the beneficiary opens a usance draft, the opening bank should pay the specified bank with a usance draft once the specified bank holding corresponding documents pays the beneficiary the draft amount at sight and intends reimbursement from the opening bank, according to the credit clause.
To the beneficiary and the specified bank, usance letter of credit payable at sight is no difference from sight L/C except its meaning of usance letter of credit and payment at sight. Their execution of the L/C, the time of reimbursement from the opening bank and the rights, obligations and risks under this L/C are completely the same as is with sight L/C. For the applicant, the usance letter of credit payable at sight is similar to ordinary usance L/C in that the applicant can refuse to pay if the beneficiary does not submit the right documents and the applicant can also take the bill and delivery goods in advance and reimburse the opening bank later when the documents are right or when he accept them despite the wrong documents.
For the opening bank, such L/C is both a sight one and a usance one. After the opening bank paid the beneficiary at sight, the usance draft issued to the beneficiary does no need to be honored or sent back, nor will there be discounted draft with the opening bank itself as the payer in the market. Under usance letter of credit payable at sight, the opening bank does not debit the applicant’s account when paying at sight. Instead, the opening bank uses its own funds and actually offers the applicant a sum of trade financing similar to documentary bill. The sum and the consequent interests will be collected back from the applicant when the draft is due. With a usance letter of credit payable at sight, the beneficiary receives the export payment at sight while the applicant settles the import payment after sight. Everyone gets what he wants and the opening bank also increases its profits as a middleman.
The characteristic of usance letter of credit payble at sight is that the draft is after sight while the payment is at sight. The paying bank agrees to pay at sight and the importer affords the discount. In another word, the exporter opens a usance draft while the L/C requires bill for collection at sight. Thus basically the opening bank or paying bank offers the importer a financing convenience, and the importer affords the interests.
As a way of reimbursement, usance letter of credit payable at sight earns the importer the convenience of capital turnover from the bank though the importer has to pay the interests; it earns the exporter the draft amount at sight though the exporter has to afford the risk of recourse before the draft is due.
2. Clauses of Usance Letter of Credit Payable at Sight
Any L/C with the following clauses is a usance letter of credit payable at sight.
1.Usance Drafts to be negotiated at sight basis and discounted by us （Issuing Bank）, discount charges and acceptance commission are for Importers account.
2. Usance draft to be negotiated at sight basis, interest is for Buyers account.
3. The Negotiating Bank is authorized to negotiate the usance drafts at sight for the face amount.
4. Usance drafts drawn under this credit are to be negotiated at sight basis.
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